The ECB’s highly expansionary monetary policy has eliminated the information usually given by financial markets

We believe one serious consequence and significant cost of the ECB’s highly expansionary monetary policy since 2014 is that it has erased the information usually given by financial markets . It has done so via three mechanisms: The abnormal squeezing of risk premia caused by investors switching from risk-free assets into risky assets; Distortions in relative prices caused by the fact that the ECB buys some asset classes and not others; The impossibility of making actuarial calculations, and therefore of knowing fundamental asset values , because interest rates are significantly lower than the growth rate.